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Be Heard plans to be a big noise in digital marketing

The short-to-medium term plan is to turn it into a £100mln turnover business focused on digital marketing – be that user experience (UX), driving traffic to sites, content or data analytics.
Digital market graphic showing all the component parts.
The company is into the hot areas of UX, digital marketing, content and data analytics

I hope he won’t mind me describing him thus, but Peter Scott is a veteran of the advertising and marketing industry.

He started his working life with Ogilvy and Mather (I won’t embarrass him by saying exactly when) and co-founded WCRS, which to quote his biography ‘morphed’ into Aegis under his tenure as boss.

The business was eventually sold to Japanese rival Dentsu for £3.2bn. After that he created Engine Group, which was sold to private equity for £100mln in 2014.

Cue retirement and a focus on family (he has been married to Jan for 35 years and has three children) with more time to concentrate on his growing herd of pedigree shorthorn cattle.

Nope, not a bit of it. Scott, it seems, enjoys a challenge, and as if to underline the point he has come to the junior market (never an easy ride for even the most experienced business founder) with his latest baby, Be Heard (LON:BHRD).

The company, which made its debut on AIM last November following a reverse into Mithril Capital, is currently valued at £22mln.

The short-to-medium term plan is to turn it into a £100mln turnover business focused on digital marketing – be that user experience (UX), driving traffic to sites, content or data analytics.

“The big picture thinking was we had a big gap in the marketplace,” Scott told Proactive Investors.

“If you look at what has happened there was a centre ground of mid-size digitally based marketing services groups… one by one these have been taken out by the Big Four.”

In other words, there is little choice for marketers, but also there are limited options for business owners who are looking to take their agencies to the next level.

The options are: be acquired by one of the major holding groups and become just a tiny cog in a huge machine or struggle on subscale, never quite reaching full potential.

Scott’s approach to his buy and build programme is to offer companies a leg up. Okay, it isn’t a purely altruistic gesture.

He is acquiring businesses with a mix of cash (around 65% of the initial consideration) and equity along with an earn-out, usually over three years.

Be Heard followed this structure with the acquisition of MMT Digital in March. It agreed to pay up to £20.5mln if the company hits all its financial targets, but is handing over only £5.1mln initially (£3.3mln of this in cash).

MMT’s team stays engaged and incentivised over the next three years with £15.4mln still up for grabs.

The targets that must be achieved are exacting and are tied to top line growth rates and margins.

The latter point is a crucial one in the Scott formula, because it prevents the business founder growing revenues at the expense of profitability.

“Everyone has to think and behave in the interests of the group, not just themselves as individuals,” said the Be Heard chairman.

MMT, which designs user-friendly web sites and apps for companies such as ComparetheMarket, Scope, the charity for the disabled, and publishing company Hodder Education, is one of two firms in the Be Heard stable currently. The other is media buying agency Agenda 21.

Already, the two businesses have identified sales synergies and the crossover opportunities will grow along as more acquisitions roll in.

Scott and the team will, using their experience and Be Heard’s deeper pockets, help businesses flourish. “We’ll get them to the next level,” said Scott.

With money in the bank and a reputation for not paying over the odds, there’s enough in the coffers to fund the short term deal flow.

The company has said it is comfortable doing four deals a year and it has the support of a pretty impressive roster of institutional investors (which includes Gresham House, Artemis and Schroders) if it wants to come back to the market to top up its cash pile.

Entrepreneur, investor and Saracens owner Nigel Wray is also a backer.

As the business grows so its ability to conclude bigger and bigger takeovers will increase. That said, Scott won’t be doing deals just for the sake of it.

Transactions must fit his ‘four pillars’ strategy (in other words be in the hot areas of UX, digital marketing, content and data analytics), and, crucially, the management must be ready to commit to staying with the businesses they are selling.

“We don’t want people who just want to pack up and go,” said Scott.

“It is about a three to four year plan. They [the vendors] do well if they deliver strong growth from the businesses.

“Our job is we are there to support and encourage them to get the maximum.”

There is deal flow there, so you suspect £100mln turnover is a just a staging post to something a lot larger.

“We have set our sights at a level where people don’t think we are completely insane,” Scott said with a smile.

As Be Heard grows and fully forms as a diversified business it will be interesting to see how the market values it.

Ten to 15 times underlying earnings (EBITDA) seems to be the range for the sector, although a pure digital play might expect to command a premium to the average.

Let’s be clear, Be Heard is currently work in progress; it’s just two acquisitions into a much more ambitious buy and build programme.

So, there’s a way to go before the investment benchmarking starts in earnest.

Chairman Scott, meanwhile, appears to be relishing the challenge.

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